Jobs, cars seen cementing U.S. spring rebound

File - A row of General Motors vehicles at a Chevrolet dealership on Woodward Avenue in Detroit, Michigan April 1, 2014. (REUTERS/Rebecca Cook)

BRUSSELS: The United States can firmly consign its weather-beaten start to the year to history this week with June vehicle sales and jobs data expected to show a strong end to the second quarter.

The United States economy contracted at a 2.9 percent annual rate, the sharpest decline in five years, in the Jan.-March period, figures showed last Wednesday.

An exceptionally bitter winter, the expiration of long-term unemployment benefits and a marked slowdown in restocking by businesses combined to drag down the world’s largest economy, but these factors should have faded by April.

Monthly jobs data, arguably the most important gauge for both the Federal Reserve and the American people, is expected to show U.S. firms are continuing to hire at a solid pace as a virtuous circle of economic activity and growth takes hold.

U.S. employment already returned to its prerecession peak in May, with nonfarm job gains of 217,000. Economists polled by Reuters on average expect that to dip by a modest 4,000 to 213,000 in June.

That would be a fifth straight month of job gains above 200,000, a run unmatched since the Sept 1999-Jan 2000 period, just before the dot-com bubble burst.

“If we settle at a 215-220 [thousand] pace that would be consistent with a transition to a faster pace of growth of around 3 percent,” said Lewis Alexander, U.S. chief economist at Nomura.

Alexander said he recognized risks, including rising oil prices from the conflict in Iraq and Iraqi conflict and a possible messy end to China’s housing boom.

“An impact is possible, but I don’t think all that likely. It would have to go very badly to materially impact the U.S. outlook,” he said.

The jobs figures Thursday, also set to feature a steady 6.3 percent unemployment rate, will conclude a shortened week for the United States, which breaks for Independence Day Friday.

The week will also feature auto sales, seen pulling back slightly in June after surging in May by its strongest pace since February 2007.

Meanwhile forecasts for the influential ISM (Institute for Supply Management) manufacturing and services reports point to a further acceleration of growth, with respectively a fifth and fourth consecutive rise in the monthly indices.

James Knightley, senior economist at ING, believes the data will support his view that growth could top an annualized 5 percent in the April-June period due to a rise of inventories, a rebound of investment and a boost from trade.

Less optimistic economists suggest the jobs, car and ISM reports should at least provide a counterbalance to muted consumer spending in May, reported last week.

Such spending rose by just 0.2 percent in the month, half the level forecast, and following a flat reading in April, prompting some economists to cut their estimates for second-quarter growth to as low as a 2.2 percent pace from as high as 4.0 percent before.

Across the Atlantic, the European Central Bank meets again, a month on from its unleashing of a far-reaching package of measures to keep the eurozone economy from slipping into a Japan-style deflation.

The ECB cut interest rates to record lows – the deposit rate to below zero – and strengthened its pledge to keep them low well into the future by extending banks’ unlimited access to central bank money to the end of 2016.

It also plans to hand out more ultracheap long-term loans to encourage banks to lend more freely to eurozone companies, but the details for such operations still need to be worked out.

Overall, 27 of 53 ECB watchers polled by Reuters said the central bank has probably done enough for now. Many among those who disagree say a quantitative easing program is required for any lasting impact on the strong euro currency and inflation.

This Thursday’s meeting is expected to be uneventful, followed by what could be one of the shortest news conferences in ECB history. Preceding its meeting, eurozone inflation is forecast to hold steady at 0.5 percent after its unexpected fall to that level in May all but sealed the case for the ECB to act. If confirmed, June would be the ninth consecutive month of inflation in the ECB’s “danger zone” of below 1 percent.

Outside the United States, purchasing managers’ indices steady for manufacturing Tuesday and services Thursday are expected to show a picture of growth or at least stability despite geopolitical tensions around Ukraine and Iraq.

Figures for the eurozone are seen unchanged for June, while those for Britain are seen pulling back from very high levels of May, when hiring in its dominant service sector matched a 17-year high.

In China, more comprehensive PMIs for manufacturing and services are expected to confirm the world’s second largest economy is stabilizing thanks to Beijing’s measures to shore up growth.

Factory activity expanded in June for the first time in six months as new orders surged, according to the HSBC/Markit flash PMI released last Monday.

A version of this article appeared in the print edition of The Daily Star on June 30, 2014, on page 6.




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